Judging from the past year’s performance, teen retailer Abercrombie & Fitch Co. (NYSE:ANF) has fallen out of favor not only with teens, but also with investors. Since March last year, ANF stock has shed nearly 46% to trade near multi-year lows.
What’s more, earnings are expected to fall more than 15% year-over-year to $1.16 per share, with revenue dropping nearly 10% to less than $1.2 billion.
Furthermore, earnings expectations have fallen steadily during the past 60 days, with brokerage firms even lowering their full-year targets for Abercrombie. Currently, the consensus expects an 18% decline in full-year earnings to $1.57 per share on revenue that is seen arriving 8% lower than year-ago levels at $3.8 billion.
As a result of both poor technical and fundamental performances, Abercrombie has attracted quite a bearish following on Wall Street. For instance, data from Thomson/First Call reveals that 21 of the 20 analysts following ANF stock rate the shares a “hold” or worse, with only nine brokerage firms handing out “buy” ratings.
Short sellers are also getting in on the act. As of the most recent reporting period, 19.6 million ANF shares were sold short, accounting for 28.8% of the stock’s total float, or shares available for public trading.
Even options traders are piling on the bearish bets. Currently, ANF’s March put/call open interest ratio comes in at a weighty 3.20, with put open interest tripling call open interest among options set to expire within the next month. Furthermore, the weekly Mar 6 series put/call open interest ratio is also elevated, arriving at 1.51.
Click to Enlarge As you can tell from the lack of call open interest in ANF’s options data, short sellers don’t appear to be worried at all about a post-earnings rally.
Overall, weekly Mar 6 series implieds are pricing in a potential post-earnings move of about 11.8%. This places the upper bound at $27.96, well below the stock’s 20-week moving average and round-number resistance at $30, while the lower bound lies at $22.04 — a fresh multi-year low for the stock.
2 Trades for ANF Stock
Put Spread: Those traders looking to jump on the bearish bandwagon might want to consider a Mar $23/$25 bear put spread. At last check, this spread was offered at 39 cents, or $39 per pair of contracts. Breakeven lies at $24.61, while a maximum profit of $1.61, or $161 per pair of contracts, is possible if ANF closes at or below $23 when March options expire.
Call Sell: If betting directly against ANF stock isn’t your style, you might consider selling a weekly Mar 6 series $30 strike call. Such a trade is especially useful if you already own ANF stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $30.
At last check, this option was bid at 19 cents, or $19 per contract. A sold call allows you keep the premium as long as ANF stock closes below $30 when weekly Mar 6 series options expire at the end of this week. On the downside, if ANF rallies above $30 prior to expiration, you could be forced to provide 100 shares of ANF for each call sold, which could be quite costly if you do not have enough ANF stock on hand to cover the call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
